A version of this article appears at parcelindustry.com.
Well, the wait is over.
With FedEx’s Sept. 18 announcement of its 2018 parcel rate increases, the GRI season has kicked off and UPS is now on the clock. (But more about UPS later.)
In its news release, FedEx says its average rate increase is 4.9% for Express, Ground, and Home Delivery and will take effect Jan. 1, 2018. The carrier also says the 2018 FedEx Service Guide will be online starting Dec. 15.
As I’ve written previously for PARCEL Media, don’t assume those 4.9% increases means a 4.9% increase for your business. In fact, it’s typically much more because no real-world shipping profile uses in equal measure every accessorial or service type, which is how carrier GRI “net averages” are calculated.
As a shipper, you need to understand the true impact on your business. And I promise the true, effective impact will be more than 4.9% the carrier cites as an average. Mitigation begins with understanding, which starts with measuring. The carriers make these decisions based on data. So should you.
Thankfully, we don’t have to wait until the Service Guide is released in December to understand what’s to come. Let’s start with the line-item details from the FedEx update that are most relevant to parcel shippers:
- Additional Handling Surcharge increases by $1 (9.1%) to $12
- Address Corrections increase by $1 (7.1%) to $15.
- Delivery Area Surcharges increase by $0.10 and $0.20 in most cases, depending on service type.
- Residential Delivery Charge is up to $4.15, an increase of 30 cents (7.8%).
- Oversized Charge increases by $7.50 (10.3%) to $80.
- 1lb. Ground Zone 2 increases by $0.33 to $7.58.
What You Should Do, Starting Now
First, take a deep breath. You’re in a great position to put your mitigation plan into action. Where to start:
- As a shipper, you need to understand the true impact of these rate increases. It’s worth repeating: mitigation begins with understanding, which starts with measuring. The carriers make these decisions based on data. So should you.
- Once GRIs are official, and before the busy holiday season, contact your carrier rep and ask, “How will this affect me?” Remember, they have the data.
- Like you would with car repair estimates or medical diagnoses, always get a second opinion. Contact VeriShip for a risk-free impact analysis to get an answer to the same question you ask your carrier rep. You’ll receive a more objective perspective because VeriShip has the data – billions of data points collected over years to establish benchmarks that align with your shipper profile.
- In ongoing discussions with your carrier rep, work toward mitigating potential impacts for 2018 and beyond.
- Model what your budget should look like for 2018 and plan accordingly, including opportunities to make operational changes to offset rate increases.
- When rates go into effect around the New Year, monitor, monitor, monitor. While UPS or FedEx make big fall GRI announcements, don’t assume they won’t continue to tweak to their advantage. You still have negotiating power if costs don’t mesh with projections.
- It’s important that you find a contract negotiation partner that doesn’t treat every business and carrier agreement with a one-size-fits-all strategy. See what that means with VeriShip’s personalized GRI impact analysis
- And don’t forget to download this parcel contract negotiations handbook for more tips, insights, and best practices.
How Will UPS Respond?
Now it is UPS’ move, which is a change from recent GRI announcements in which they took the lead. So, will the result be more of the same – 4.9% all around! – or will UPS diverge in important ways like the carriers did with base rates for 2017 and with recent peak season surcharge moves?
Don’t forget, FedEx dominated the public relations battle with its peak season communication strategy. How will that affect the position UPS takes now that it’s their turn respond? Chances are we’ll know very soon.
Andrew Brueckner is VeriShip’s Chief Customer Officer. Backed by a team of data scientists and 10+ years of benchmarking data, Andy and his team work with shippers to understand and optimize their carrier contracts.